Car shopping is an interesting event. Having a car, whether it is the first one, or if you have traded for a better one, is such a break because it offers you a chance at other opportunities. But to afford that car, one might feel pressured to borrow which means taking a loan could be challenging. SE Loans enable you to purchase the car and pay for it in installments but they also involve paying for the car in equal portions, sometimes for several years. So how much will your car loan if you are borrowing $15,000 your car cost each month? Keep reading to find out how you can plan for your monthly car loan payment.
The factors that contribute to the amount of your monthly payment
When you take out a car loan, several key factors affect the monthly payment amount:
Loan amount – This refers to the amount of money that you are to get to help you pay for the car. In this example, it is equal to $ 15,000.
Interest – Interest is charged by the lender and is commonly expressed as a percentage of the principal sum. Current auto loan interest rates are offered within the range of 3-6%.
Loan term – This determines the number of months that you will have to take to pay the loan. These are normal time terms; short-time terms are thirty-six months, forty-eight months, sixty months, and seventy-two months.
Down payment - This is the amount of money you need to bring towards the purchase of the car to minimize the amount that will be required to be borrowed with the interest charge.
As has been demonstrated, the loan amount, interest rate, loan term, and down payment all bear a direct relationship with monthly payments. Now, let us provide an example to understand how the mathematics of it all works.
How to determine your monthly payment on the car loan?
Jenna’s chosen vehicle is a used sedan with a price going for $15000. She liked it and thought she wanted to go ahead and buy the car for herself. Here are the details of her loan:
Vehicle Purchase Price: for $15,000
Down Payment: $2,000
Principal Amount Financed: The cost of the application is $13,000.
Interest Rate: 5%
Loan Term: This means that the customer has spent 60 months to repay his/her loan.
With these specifics, here is how to calculate Jenna's monthly payment:
1. To calculate the amount of credit, reduce the price of the car by the down payment to arrive at the principal amount of credit.
$15,000 – 2,000 = $13,000
2. Take the raw interest rate and divide it by 12 to determine the monthly interest rate.
5/ 12 = 5/12 * 100 = 416.7/100 = 4.167%
3. To solve the problem of an online loan calculator will help select the monthly payment. Or apply this formula:
M = P x (J / (1 ? (1+J)^ ?N))
Where:
M = Monthly Payment
P = Principal Amount
J = Monthly rate of interest
N = Num of Month Payments
Plugging in the numbers:
M = $13,000 x (0.0042 / (1 – 1.261930))
M = $260.42
Therefore, the monthly payment for a $15,000 loan for 5 years in this case is $260.42.
Loan Terms or What’s the Difference Between Your Monthly Payment
Once again, referencing Jenna’s example, you can notice that the term of the loan determines the amount of monthly payments. The repayment period indicates that as you choose to take more time to pay, the monthly payment is also small. Here is how Jenna's payment changes at different terms:
- 36 months – $ 377,65
- 48 months – 286,40$
- 24 months – $114.17 36 months – $178.00 48 months – $240.83 60 months – $260.42
- Twenty-eight two – seventy-two months – two hundred and twenty-three and ninety-three only.
A 72-month term reduces the payment to a little over $40 per month compared to the $60+ when taking a 36-month term! But remember, the greater the time the longer the total interest that you are charged on the loan. Remember that extra convenience is often offset by higher total costs in the long run.
The following are some things that can be done to help bring down the monthly payment:
Here are some of the things you can do to minimize the amount of money you have to pay each month for car loans. Here are some top tips:
- Make a bigger down payment of 20% or more on the loan to reduce the loan amount.
- Mortgage interest rates from a variety of sources to get the most favorable rate
- Opt for the longest repayment period possible to repay the borrowed money and pay a lesser amount as per installment.
- Choose a car that is cheaper to maintain and purchase and which will need a smaller loan.
- One should exercise the option of paying off the loan early to minimize the total interest being charged.
These steps help you to avoid having to pay high interest and can allocate a larger proportion of your monthly salary to other bills and expenses.
Understanding how to calculate car loan payments is power: Tips for taking control.
It is a major decision and can involve borrowing thousands of dollars for a car loan which is a financial decision that takes years. Although you are not completely dependent on the payment plan set by the lender. Having reviewed how to go about calculating the monthly payments, it will be easier to evaluate various loan situations and their cost implication. Knowing that you empower yourself to select the most appropriate loan to own the desired car is a dream come true
Call now for expert credit repair services: (888) 803-7889
86 to 90
Read More:
How to ask for late payment forgiveness?
What credit score is needed to buy a car?
How long after buying a house does your credit score go up?
Can I wipe my credit file clean?
Can you legally erase bad credit?
